Wall Street to Geithner: You can go

Wall Street is giving Treasury Secretary Tim Geithner the green light to leave the Obama administration, despite the debt-ceiling crisis unfolding in Washington.

The financial-services industry views Geithner, a former head of the New York Fed, as a relative ally in difficult times. His most-talked-about prospective replacement, White House Chief of Staff Jack Lew, is more of an unknown quantity.

{mosads}But after watching Washington pull off a string of buzzer-beating fiscal deals, market movers are confident that policymakers will reach a deal to raise the debt limit in time, no matter who’s at the top of Treasury.

“We’ve been through four episodes where the market was waiting for Washington to do something, and in all four episodes they ended up doing what was expected,” said Alec Phillips, an analyst with Goldman Sachs.

“It seems like you will not see people showing significant anxiety.”

Wall Street also understands Geithner’s desire to take a breather after watching him careen from crisis to crisis since the market crash of 2008.

“Given his expertise, intellect and experience, we’d like him to stay on for as long as possible,” said Scott Talbott, the senior vice president for public policy at the Financial Services Roundtable. “However, we certainly understand his departure, given the toll Washington, D.C., can take.”

Geithner’s departure from the administration could come at a stressful time, with Treasury using “extraordinary measures” to prevent the government from defaulting. The Bipartisan Policy Center this week estimated those measures might only last until mid-February, at which point an increase in the $16.4 trillion debt ceiling would be needed.

Industry lobbyists and Wall Street watchers say they see no reason yet to be concerned about a default, making Geithner’s exit easier to swallow.

“Wall Street is just taking a timeout from political battles,” said Brian Gardner of Keefe, Bruyette and Woods. “I think there’s a sense, at least in some quarters, that we went through this already … and nothing happened.”

Gardner said many in New York have become “cynical” about “hyperbolic rhetoric” from politicians and the media in Washington.

A senior lobbyist in D.C. also noted that, while the financial industry might be more comfortable with Geithner than Lew, the debt-ceiling debate is larger than any one official.

“This will be a huge debate in the public policy community, regardless of who’s at the helm,” the lobbyist said. 

But while Wall Street and the markets are brushing off the debt-ceiling debate, they are nonetheless preparing for a transition at Treasury if Geithner departs after the inauguration.

Financial lobbyists in D.C. said they understand why Obama might turn to Lew, a veteran of budget fights, given that taxes and spending are likely to be a continued focus during his second term. But they said a getting-to-know you period would be needed if Obama makes the move.

While Geithner never worked on Wall Street, he brought a thick Rolodex of New York connections to Treasury.

“Lew is clearly not in that world,” said Daniel Alpert of Westwood Capital.

But financial lobbyists also said they would feel comfortable with Lew, who did spend some time at Citigroup in New York, if the administration brings in deputies experienced with the markets. 

Gardner and Alpert said the financial industry could have more concerns over how Lew would handle deciding which financial institutions require tighter regulation under the Dodd-Frank law and how to regulate money-market funds.

“On the regulatory side, there probably are some questions from those following financials,” Gardner said. “I don’t think the markets really know who Jack Lew is right now.”